Neely Style Chart

I have written before how the zigzag indicator, properly configured, can be used to emulate a Neely-style wave chart which can offer some clarifying information on the current wave situation. The ES 4-hr chart is shown below, again using this technique.

With 132 bars on the chart, the current count looks pretty straight-forward. First, there is no overlap of wave (iv) with wave (i) to be a cause for concern. Second, the Elliott Wave Oscillator (EWO or AO) is still within the range of a fourth wave, and the wave (iv) price, itself is still within the 38 - 50% retrace of wave (iii) that would be expected of a fourth wave. This is shown by the Fibonacci ruler on the middle-right. Third, there is alternation between the forms of wave (ii) and wave (iv) at present. This would still be the case if wave four decides to triangle - which is does not need to do. It is optional. Fourth, the third wave down, (iii), is greater than a 1.618 extension of wave (i) so we are supposed to err on the side of a third wave rather than a (c) wave. And fifth, the third wave, (iii), is in a channel with an impulse count visible. 

All of this is only to say that the probability of a downside continued move is slightly greater than that of the alternate three-wave-count shown in red below the price bars. But I'd still only rate the probabilities as about 65-35%, but 35% odds events are not prevented from occurring in any manner.

The beauty of the zigzag chart is that it connects the actual price vertices when used properly to show the real wave terminal points, but it still eliminates a lot of the noise while confirming some or most of the interior wave structures. Further, the actual price bars can be hidden as above to allow the study of the movement without other distractions.

As a completely sidenote one can also observe that some of the sentiment indicators are dead neutral. These include the advance/decline statistics, the McClellan Oscillator, overall bull-bear ratios (not just the AAII sentiment) etc. So, the chart provides what it does, and the alternate structure is clearly indicated.

Have an excellent rest of the evening and the weekend,

TraderJoe